(20 second reading) Since the Iran-Israel War has escalated, worries over India’s current account deficit have re-emerged with crude oil prices expected to touch $100 per barrel soon . Being the world’s third largest consumer of crude oil with around 80 percent of the crude being imported, India is particularly vulnerable to any price fluctuations in this commodity.
Historical data shows that there is a high correlation between oil prices and the current account deficit (CAD). As the average oil price increases, the current account deficit widens. When the oil price was between $100 and $120 per barrel in the past, India saw its current account deficit burgeoning to -3.6 percent of GDP. Given that India settles its oil imports in dollars, a surge in oil import expenses can drive up demand for dollars, potentially depreciating the rupee vis-à-vis the dollar.